Big Data Helps Farmers Weather Drought’s Damage

In a country that takes for granted its ability to engineer abundance, this summer’s drought sent a searing reminder that sometimes the weather still wins. A dousing of rain from Hurricane Isaac’s tail end was not enough to save withering crops across the Midwest, a calamity that has sent food prices soaring.

While consumers may suffer, the rising value of farmers’ crops coupled with the increased risk of climate change-induced extreme weather has made crop insurance a hot business. One insurer taking a 21st-century approach to taking the temperature is The Climate Corporation, a 6-year-old San Francisco-based company that crunches massive streams of climate data to assess future risk and current damage. Its vast sensor network analyzes and predicts temperature, precipitation, soil moisture, and yields for 20 million U.S. farm fields with hyperlocal precision. The company has every incentive to get its micro-predictions right: Payouts are automatic based on whether those factors reach a crop-harming threshold on a day-to-day, farm-to-farm basis. The granularity of its data also offers an extreme close-up of just how severely this year’s drought has ravaged the country’s farms.

For example: The Climate Corporation provided Wired with data from a farm in Kay County in north-central Oklahoma — a region especially hard-hit by this summer’s drought. The chart below shows the maximum daytime temperature reached daily over two months this summer. As determined by the company’s algorithms, any day that hits 98 degrees Fahrenheit or higher qualifies as a “heat stress day,” which can curtail crop growth and hurt pollination. Depending on the week, the farmer gets either $1 or $2 per acre for each heat stress day. Three or more heat-stress days in a row equals a heat wave; any heat-wave day doubles the payout.

As the chart illustrates, this farm was hit with crop-damaging temperatures on well more than half the days during the height of summer:

Chart: Ross Patton/Wired. Data: The Climate Corporation.

Along with the heat, Climate Corp’s data shows just how parched the drought has left this farm this summer. Using a calculation based on temperature, precipitation, and soil type, the company determines how much moisture a farm’s soil retains on any given day. A farm where soil moisture retention reaches 100 percent is saturated; 0 percent is bone dry. Under this farm’s policy, the “wilting stress point” is soil moisture of 2 percent or lower.

The chart below shows how the Oklahoma farm’s soil moisture steadily evaporated through June and left the soil cracked and dry for the rest of the summer. In this case, the farmer receives a payout for every consecutive day below the wilting point that follows three straight days of wilting—$4.75 per acre per day for most of July and into early August.

Chart: Ross Patton/Wired. Data: The Climate Corporation.

Altogether, Climate Corp says a 1,000-acre farm under these conditions would receive the maximum $150,000 payout this year on a premium of just over $31,000. That’s in addition to a likely greater sum from the federal crop insurance program—The Climate Corporation’s policy is a supplement to make up the difference between the federal payout and what farmers need in order to hit their annual targets.

This year, the company says it’s paid out on nearly 80 percent of its corn policies, made some kind of payment on 97 percent of its policies overall, mostly due to drought conditions. But CEO David Friedberg says the 6-year-old company won’t go under. While this year’s drought may be bad, he says the company runs 10,000 weather scenarios per location covering the next two years. Because of the finely sifted granularity of their data, even a year this extreme still fell along The Climate Corporation’s prediction curve, which forecast about a one in ten chance that such a drought would occur this summer. As the chart below shows, 2012 is one of the worst summers in recent decades for drought-spurring heat, but so far 1988—another drought on the heels of a financial crisis—still has this year beat.

Chart: The Climate Corporation/Ross Patton/Wired

Friedberg says it’s this fine sifting of climate data that allows farmers to protect themselves better while enabling his company to shore up its own defenses with much greater precision against the risks of Mother Nature’s market forces. “It’s not like a 99.999-percent thing that we never accounted for,” Friedberg says. “We can have a good sense of the range of uncertainty.”

The company is also covered by reinsurers, who are eager to get into the crop insurance game. According to the World Bank, crop insurance premiums written during the second half of the last decade more than doubled, growing by $10 billion as the assets and output of agricultural production have risen in value. This increase has come even as—and likely because—climate extremes such as this summer’s drought become more probable.

At the same time, The Climate Corporation says that an extreme-weather tipping point does exist where crop insurance stops making economic sense. As the frequency of drought and other disasters induced by climate change rises, the price of insurance goes up. Farmers will either have to accept lower profit margins as a result, or raise their prices. In some regions where weather uncertainty becomes too great, farming itself could become unsustainable, the company says. Maybe the next big-data algorithm will figure out how to get food on people’s plates.